Regional Growth Fund to help small businesses

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

The funding is expected to create at least 4,000 jobs and unlock around £500 million of new investment by small and medium businesses (SMEs)…

The funding is expected to create at least 4,000 jobs and unlock around £500 million of new investment by small and medium businesses (SMEs).

RBS, NatWest and HSBC have agreed to facilitate the distribution of the £95 million - which is part of the government’s Regional Growth Fund. RBS and NatWest will facilitate £70 million and HSBC will facilitate £25 million. The banks will not profit financially from the administration of these schemes.

Through these schemes small businesses, which are unable to secure commercial funding for their project, have the potential to benefit from government support through the banks’ regional networks in order to make their project commercially viable. The schemes announced today will provide grants to support SMEs considering investing in new capital assets and creating new employment.

Business Minister Mark Prisk said:

“These schemes will directly help SMEs that want to invest and create new jobs. They will deliver a shot in the arm to local communities and help small businesses drive local growth.

“100 per cent of the RGF funding will be provided as grants to small businesses with the banks employing their regional networks to administer the schemes for free.”

Peter Ibbetson, Small Business Chair at NatWest and RBS said:

“We have experienced managers in all the communities this fund is aimed at, we are also the leading bank for asset finance - nobody is better placed to ensure the £70 million we’ve been allocated goes to where it’s needed most.”

Jacques-Emmanuel Blanchet, Head of Commercial Banking, HSBC UK said:

“I am delighted that the bank is participating in the Government’s Regional Growth Fund.”

“HSBC is committed to supporting strong viable businesses and our Assisted Asset Purchase Scheme highlights this. The scheme will provide critical support for businesses that are looking to grow and recruit, enabling them to purchase the assets they need, to achieve their goals.”

The key features of the RBS, NatWest and HSBC schemes are:

The RBS and NatWest scheme is called the regional growth fund and will distribute £70 million; the HSBC scheme is called the Assisted Asset Purchase Scheme and will distribute £25 million.

The funding will support new job-creating investment by SMEs across England, in particular parts that have become over-dependent on the public sector.

100 per cent of the RGF funding will be provided as grants to SMEs with the banks employing their regional networks to administer the schemes on a pro-bono basis.

SMEs can qualify for a grant if they are going to invest in new capital assets, such as plant and machinery, and create new jobs - and cannot get normal bank finance.

Grants of up to £500,000 will be awarded alongside the award of a new bank loan on commercial terms.

To qualify for the NatWest and RBS scheme, SMEs need a turnover of less than £25 million.

To qualify for the HSBC scheme the SME will need a turnover of less than 50 million Euros.

The banks will not earn any fees to administer the scheme. Interest earned on any funds held on the bank’s balance sheet must be used for beneficiary grants or returned to the government.

The government’s Regional Growth Fund is a £1.4 billion fund supporting projects that can create jobs, are based in areas dependent on the public sector and are supported by private sector investment.

The fund has been primarily targeted at larger firms, with a minimum grant threshold of £1 million.

Notes to editors.

The key features of the schemes are:

All the RGF funding must be used for beneficiary grants. The banks cannot earn any fees to administer the scheme, and interest earned on any funds held on the bank’s balance sheet must be used for beneficiary grants or returned to HMG.

Beneficiary grants must only be awarded to SMEs to support the purchase of new capital assets (typically plant and machinery), where the beneficiary agrees to create new employment or safeguard employment that will be lost if the investment in new plant and machinery is not made.

Beneficiary grants can only be awarded alongside an award of a bank loan for the purchase of the new asset - grants cannot be used to support refinancing existing debt by a beneficiary. The banks expect that bank loans that accompany an RGF grant will typically be two to five times the size of the grant.

Grants cannot be provided where the reason why the original loan application is declined is that the beneficiary has insufficient security to support the new debt, as in these circumstances the government’s existing EFG scheme can help the beneficiary access commercial funding.

Beneficiary grants can only be awarded where the bank would decline a loan application using its normal credit criteria for SME lending.

The schemes must operate in a manner that is consistent with European State aid rules on SME Investment Aid and Regional Investment Aid.

EXAMPLE

Company X is a small company.

It wants to purchase a new machine to enable it to expand its operations and take on more staff.

The machine costs £100,000, but the bank’s normal credit criteria will only lend the company £70,000. The company can only contribute a further £10,000 and on this basis the application for asset finance would be declined.

The banks, through the HSBC Assisted Asset Purchase Scheme or the RBS and NatWest Regional Growth Fund, can award the company a grant of £20,000, thereby providing the company with the funds to unlock the project.